American consumers remained upbeat about the economy in September as spending at retail stores and online exceeded consensus forecasts.
Retail sales for all items increased by 0.4% while the control group grew by 0.7% in September. Our forecasts had called for a 0.5% increase for both numbers, so the data released by the Commerce Department on Thursday was not such a surprise to us.
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After adjusting for price changes, the rise in sales volume appears as strong as the top-line numbers suggest.
Both total sales and the control group grew by 0.5% for the month on an inflation-adjusted basis. On a three-month moving average annualized basis, these figures were 5.2% for total sales and 7.5% for the control group.
In a sense, the drop in energy prices and other categories was offset by the rise in food and clothing prices, minimizing the impact of inflation on sales volume in September.
To put this in perspective, the control group, a key contributor to the goods spending category within gross domestic product calculations, grew more than twice as fast in the third quarter than it had in the second quarter, which was only 3.3%. This acceleration suggests there is a clear upside risk to our GDP forecast of 3.0% for the third quarter.
In a separate report Thursday, initial jobless claims fell unexpectedly as the impact of hurricanes on Southern states subsided quickly. But we remain cautious about reading too much into the results, because we won’t have a clearer picture of layoffs in jobless claims data until November.
The labor market remains strong in other states, which continues to drive spending growth across the board. That should be a recipe for the Federal Reserve to cut its policy rate by 25 basis points in November as we have forecast.
Inside the data
The increase in sales was driven largely by food and beverage spending. Both increased by 1.0% on the month. Spending on clothing and personal care was also a big factor, rising by 1.5% and 1.1%, respectively. Overall, 10 of the 13 categories posted an increase in September.
At the same time, sales of furniture and electronics led the decline, falling by 1.4% and 3.3%, respectively.
